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August 11, 2009

Obama Administration Proposes Derivatives Reform

comprehensively regulated for the first time," according to the Treasury Department announcement. "These markets have largely gone unregulated since their inception. Enormous risks built up in these markets - substantially out of the view or control of regulators - and these risks contributed to the collapse of major financial firms in the past year and severe stress throughout the financial system," the administration's announcement said.

The "Over-the-Counter Derivatives Markets Act of 2009"calls for legislation that will "promote the transparency and efficiency," in OTC derivatives markets, and mitigate "excessive risk to the financial system." The administration also intends to pass legislation that, by year-end, will "prevent market manipulation, fraud, insider trading and other market abuses," in OTC derivatives markets and aims to prohibit sale of OTC derivatives to "unsophisticated" investors.

Provisions of the proposed legislation give power to the Commodity Futures Trading Commission and Securities & Exchange Commission to jointly issue rules but gives the Treasury the power to step in if the two regulators don't, "jointly prescribe uniform rules and regulations under any provision of this Act in a timely manner."

Comments? Please send them to kmcbride@wealthmanagerweb.com. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.